Tuesday, November 11, 2008

Investors reevaluate Gulf projects

...the credit crunch challenges all three pillars of Dubai's boom. The capital flow has reversed direction. Banks are pulling back from financing Dubai's glossy sand-into-dollars tricks, leaving dunes of debt to deal with: $50 billion, Moody's estimates, more than the emirate's 2006 gross domestic product. Almost half has to be refinanced within the next two years, according to J.P. Morgan Securities.

Dubai is not likely to face financial collapse, thanks to its oil-rich neighbors. The Central Bank of the United Arab Emirates has already made billions available in loans and lines of credit whose purpose was not clearly explained. Now that the price of oil has plunged, Dubai will have to finance more of its own growth.

With credit in short supply, some ambitious projects will fail, and skilled foreign workers could head home.

Gulf rulers are braced for lower revenue due to falling oil prices. At the same time, outside financing amid today's credit crunch is suddenly much tougher to pull off.

Financing for billions of dollars in planned water and utilities projects could also be threatened by difficult financing markets, industry executives say. Despite huge oil-fueled budget surpluses, many governments have sought to spread the financing burden for large projects to international partners, who have rushed to the region to take advantage of the boom. Some big power and water projects can be as much as 60% to 70% debt-financed.

"Banks at the moment are like rabbits in the headlights," Ranald Spiers, Mideast executive director at International Power Group Ltd., the region's largest power developer, told Zawya Dow Jones earlier this week.